Division of Revenue 2012/13: Financial and Fiscal Commission briefing

Meeting report

In his presentation, Mr Bongani Khumalo, Acting Chairperson, Financial and Fiscal Commission, said that, in relation to the macroeconomic and fiscal outlook, international economies were dealing with complex issues when it came to adjusting fiscal policy in the present uncertain environment. South Africa had been moving towards fiscal consolidation. Even though the latest budget placed a high priority on job-creation, medium-term forecasts indicated a reduction in the budget. Government was also proposing the implementation of fiscal guidelines aimed at strengthening fiscal frameworks in line with New Growth Path objectives.

Its recommendations in this regard were for Government to continue with a gradual programme of fiscal consolidation that entailed moderately, though consistently, reducing the budget deficit. It also supported proposals to implement fiscal rules.

Despite a positive economic outlook more needed to be done around unemployment, poverty, inequality, low economic growth and the Millennium Development Goals (MDGs). Government faced difficult trade-offs in addressing these. With respect to prospects for achieving accelerated economic growth there needed to be focused infrastructure spending as this resulted in improved gross domestic product (GDP) growth and also reduced the debt-to-GDP ratio, especially over the medium term. With respect to current Inter-Governmental Fund Transfers (IGFTs), there was a need to reduce disparities in terms of the well-being amongst provinces.

National, provincial and local governments should further reprioritise expenditures in respect of Equitable Share and Conditional Grants for 2012/13 in order to move towards the attaining of the MDGs. The time frame for the attaining of all outstanding MDGs should be extended beyond 2015 so as to make this more feasible. Government should also continue strengthening the equity focus of the current system of intergovernmental transfers, particularly in the health and education sectors.

In relation to a vibrant urban economy, it was found that municipalities spent poorly on repairs and maintenance and also needed to improve their technical efficiency in utilising existing resources. In this regard, national and provincial treasuries’ efforts to improve the credibility of municipal budgets through annual benchmarking exercises should continue to be supported. Government should also, as an interim measure, establish and publish guidelines for municipalities on the management of municipal consumer debt in terms of interest charges, debt impairment and the writing off of bad debt. National and provincial government should also develop and support peer learning and support programmes that would assist poorly performing municipalities to leverage the experience and best practices of well-performing ones. The data available at local government level should also be reviewed so as to ensure appropriate surveys and alternatives were available to account accurately for changes in demographics and other factors at municipal level.

A vibrant urban economy was essential for sustainable development and economic growth. In South African cities, however, land was used inefficiently, as characterised by low density levels. Government should therefore actively pursue the development of a more spatially compact urban form of cities. The Commission’s analytical work around the fiscal and economic costs of the current urban form of cities should be reviewed by Government.

Climate change could undermine local economic development. The costs of climate change to local economies was not very well understood and could lead to increases in water and electricity infrastructure expenditures as municipalities would need to forgo the provision of essential services as they stretched their budgets in order to cater for climate change consequences.

Government should, in this regard, ensure that municipalities developed their own climate change mitigation and adaptation strategies. It should also provide support in this respect over the next three years. Municipalities should also be provided with a performance-based conditional grant which rewarded actions that  were environmentally efficient and responsive to adaptation and mitigation challenges of climate change.

In relation to improving the developmental outcomes of the IGFT system, Government should finalise the implementation of the Occupation Specific Dispensation (OSD) and formalise the performance evaluation system. In dealing with the expansion and implementation of OSD, Government should be mindful if rising public sector wage bill relative to other priorities, rethink funding of personnel costs, undertake a full costing of OSD and formalise performance evaluation with the aim of boosting performance. The coordination, provisioning and financing of scholar transport should be improved. It was also recommended that all resources associated with delivering a service associated with scholar transport be transferred to the Department of Transport. A thorough assessment of the financial and fiscal implications of this shift should also be conducted before this shift took place.

In terms of rural development, governance and institutional arrangements across the three spheres of Government needed to be clarified. With regards to unfunded mandates, Government should take steps to ensure that all mandates had a legal basis. Functions performed by each sphere of Government must have a secure legal footing.

Discussion
Mr M Makhubela (COPE, Limpopo) asked what other options there were when seeking to gather accurate data.

Mr Khumalo answered that the Commission had, in 2007, made a recommendations around this in the form of a local government data collection coordinating forum which would rationalise the information that was available as well as ensure that such information was indeed credible. There was a need to formalise the data or statistics options that were available.

Mr B Mashile (ANC, Mpumalanga) asked what had informed the recommendations around scholar transport.

Mr Khumalo answered that a review it had conducted had found that there were high levels of inequality across the different provinces in this regard. As this function was being undertaken by the different departments, there was no uniformity and therefore no meeting of national norms and standards. As such there was a need to identify the allocation of this function.

Mr C de Beer (ANC, Northern Cape) asked what it saw as a possible solution to the challenges around IGFTs, especially around the inordinate length of time it took for transfers to take place.

Mr Khumalo answered that the Commission would be hosting public hearings around fiscal systems for local government.

Ms Tania Ajam, Commissioner, Financial and Fiscal Commission, added that the lengthy transfer period was related to poor implementation. The Commission was, together with National Treasury, working on a programme which would seek to address this challenge. She added that it was hoping to ensure a more focused dialogue around this through the aforementioned up-coming public hearings.

The Chairperson asked how the issue of inequality could best be addressed.

Mr Khumalo answered that this was a very complex issue. Programmes that had been put in place to redress the effects of apartheid (e.g. in health, education and social welfare) had not yielded the desired results as there had not been an effective response from the broader economy. Economic growth had, for example, not resulted in sufficient job creation.

Mr Mashile asked why so little had been said around the issue of climate change. What could be done to ensure that funds are not withheld from municipalities who lack capacity to perform in the manner needed so as to secure those funds? How did the New Growth Path, as an incomplete policy, affect service delivery and how did it suggest continuing in this regard so as to ensure adequate economic growth? Was peer learning not the responsibility of the South African Local Government Association (SALGA)? Why was there such a strong emphasis placed on the densification of cities when more work need to be done around rural development? Should the allocations for housing not be consolidated? Could wage bargaining not be done prior to the Budget being decided?

Mr Khumalo answered that it was in consultation with SALGA about the issues around wage bargaining.  The Commission could, at a later date and with the permission of the Committee, make a presentation around its own interpretation of the New Growth Path and the financial and fiscal implications thereof. SALGA did indeed have a role to play in this regard, though national and provincial governments needed to provide it with broader support. Urban development was emphasised in the relevant chapter as urbanisation was taking place at a rapid rate as result of people’s need for employment. The model generated in this regard used real data based on six urban areas. Significant savings could be made in this regard by focusing on compact as opposed to sprawling urban areas. The National Treasury would be better suited to comment on the consolidation of housing allocations. It was in consultation with SALGA about the issues around wage bargaining. 

The Chairperson responded that wage bargaining prior to the Budget being decided would not assist the process as it would require Government bringing labour on board from the beginning to the end of the process. This was also an issue that, although it needed further engagement, was not suited for discussion in this meeting. The Committee would take the Commission up on its offer for a presentation around the New Growth Path.

The meeting was adjourned.